Wall Street, known for mood swings, has outdone itself lately.
Thursday, the Dow Jones industrial average dropped 391 points to below 10,734 as investors worried that the United States and Europe could be brewing up a worldwide recession.
It was the ninth time in seven weeks the Dow has passed through the 11,000 mark in a tug of war between optimism and worry.
All but one of the moves involved one-day swings of more than 300 points each.
The result of all these gyrations? The stock market’s just about where it was seven weeks ago after its winning streak snapped. The Dow Jones recovered slightly Friday, rising 37.65 points to 10,771.48.
“It’s sort of suffering from cognitive dissonance,” said Atlanta money manager Phil Larkins, of Northern Trust.
Ever since the stock market plunged 15 percent in July and August amid growing worries over softness in the economy and political dysfunction in Washington, D.C., investors have been oscillating between bargain hunting and fear of a meltdown.
On the one hand, investors have been tempted by relatively cheap stocks and high dividend yields, Larkins said. Since interest rates have dropped so much, blue-chip stocks often pay better yields than 10-year Treasury bonds, said Larkins.
On the other hand, investors have lost confidence that political leaders can pilot the U.S. and Europe to an economic recovery and avoid another recession, he said.
He thinks the optimists are right, but “I sure wish it was less volatile.”
The pessimists may be justified, said Dorsey Farr, an economist and financial adviser with French Wolf & Farr in Buckhead.
“What we see is an economy in or on the verge of recession,” he said. Meanwhile, Greece’s potential default on its sovereign debt could spread financial distress across the European Union and possibly farther, he said.
“I think ultimately we’re going to drift a bit lower before all is said and done,” he added. “Not only have we crossed 11,000 several times in the last few weeks, but we have crossed through 11,000 several times in the last decade, in both directions,” he said.
The first time was in 1999, meaning stock investors generally haven’t made much headway in 12 years, other than dividend income.
“That’s what’s frustrating,” Farr said.
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